Why The Nasdaq Is Doomed

The sell-off in the Nasdaq hasn't even really started yet because there are still dip-buying fools out there, but a big one is coming. Door number one is a taper correction. The Fed decides to actually fight inflation. Since most of the Fed's monetary emissions flowed into tech and growth stocks, they will be at the epicenter of a correction. That's already underway. If the Fed is serious, the correction could end sometime in the first quarter as inflation comes out of the economy. This would require a plunge in energy prices.

Door number two is the 1973-1974 bear market analog.

Bloomberg: U.S. Retail Sales Slid Last Month Amid Inflation, Omicron Hits

U.S. retail sales slumped in December by the most in 10 months, suggesting the fastest inflation in decades is taking a greater toll on consumers just as the nation confronts more coronavirus infections.

The value of overall purchases decreased 1.9%, after a revised 0.2% gain a month earlier, Commerce Department figures showed Friday. The figures aren’t adjusted for inflation, suggesting price-adjusted receipts were even weaker than the headline number.

A recession is the natural consequence of USG stimulus and Federal Reserve quantitative easing. It is called a boom-bust cycle for a reason. Inflation and debt-financed stimulus creates an unsustainable boom. When the stimulus and central bank support end, the boom collapses. Asset prices reverse. The more deformed (inflationary) the boom, the bigger the bust when those malinvestments fail. The economy will be smaller post-bust than it would have been without the original stimulus.

Inflation cannot be sustained without more money creation. The Federal Reserve faced this moment in the 1970s and each time, they chose to ease to prevent a recession. End result: they caused the worst depression since the 1930s in the early 1980s. If the Federal Reserve backs off its taper plans for fear of economic weakness, it will drive an inflationary knife into the heart of the stock market and the U.S. economy. The U.S. consumer will come under more pressure. Retail sales will be even worse. Eventually, the stock market will be suffering the worst bear market since '73-'74 or the 1930s, the economy will be in recession, inflation will be double-digits, and the Federal Reserve will be discussing crippling rate hikes.

In the Carboniferous Epoch we were promised abundance for all,

By robbing selected Peter to pay for collective Paul;

But, though we had plenty of money, there was nothing our money could buy,

And the Gods of the Copybook Headings said: "If you don't work you die."

Then the Gods of the Market tumbled, and their smooth-tongued wizards withdrew

And the hearts of the meanest were humbled and began to believe it was true

That All is not Gold that Glitters, and Two and Two make Four

And the Gods of the Copybook Headings limped up to explain it once more.